Turkey: Istanbul Regional Court Of Appeal Decisions Regarding Law No. 805 On Mandatory Use Of Turkish Language In Arbitration Agreements

Introduction

Law No. 805 was accepted on 10 April 1926, and entered into force through publication in the Official Gazette dated 22 April 1926 and numbered 353. This Law introduced several obligations on Turkish commercial enterprises as to the usage of the Turkish language. Simply stated, the Law requires Turkish companies and enterprises to use Turkish in all transactions, agreements, correspondences, accounts and books. This old law contains only nine articles, and its application does not extend to contracts that are to be performed outside of Turkey.

Recently, the Turkish Court of Cassation ruled that this Law is also applicable for arbitration agreements and deemed the arbitration agreements in foreign languages to be invalid.1 In this article, two recent decisions on Law No. 805 and its application to arbitration agreements, of the 12^th Chamber of Istanbul Regional Court of Appeal ("Court"), will be examined.

Shall the Mandatory Use of Turkish Be Applicable when One of the Parties Is Not Turkish?

The first decision to be examined in this article is the Court's decision dated 13.02.2020 and numbered 2020/19 E. and 2020/184 K.2 In the decision, the Court focused on the difference in the wording of the first and second articles of Law No. 805, and stated that if one the parties is not Turkish, then it is not mandatory to use Turkish in the arbitration agreement. According to the Court, the mandatory use of Turkish for foreigners is regulated under Article 2, and the said Article does not list "agreements" as opposed to Article 1. Therefore, a non-Turkish arbitration agreement is valid if one of the parties is foreign, thus the arbitration objection raised by the defendant is to be accepted by the court of first instance. The relevant part of the decision reads as follows:

"On the other hand, the Claimant bases its arguments on Article 1 of Law No. 805 and claims that the arbitration agreement in a foreign language is invalid. Pursuant to Article 1 of Law No. 805, "All types of companies and enterprises of Turkish origin shall make all transactions, agreements, notifications, and keep records and ledgers within Turkey, in Turkish." Pursuant to Article 2 of the said Law, for foreign companies and enterprises, this requirement is for notifications, transactions, and correspondence with Turkish companies, and documents and ledgers that are to be presented before state agencies. In the case at hand, as Article 1 of Law No. 805 is not applicable, the Claimant's grounds for appeal that have not been brought before the court of first instance shall be rejected."

The Court adopted a pro-arbitration approach since the decision narrows the scope of application of a very old Law, which is not appropriate for arbitrations. Through this decision, the mandatory use of Turkish in arbitration agreements is limited for the cases in which both of the parties are Turkish. Although the approach is positive, whether the application of the Law is accurate remains disputed. The second Article explicitly regulates that all "transactions" of which a foreign company is party to shall be made in Turkish. As there is no doubt that an agreement is also a "transaction," it could be argued that such exclusion of arbitration agreements from the scope of Article 2 is contrary to the Law.3

Is the Mandatory Use of Turkish Applicable when the Arbitration Agreement is Incorporated by Reference? To Which Parties and to Which Texts is this Applicable?

The second decision of the Court is dated 13.02.2020 and numbered 2019/2389 E. and 2020/189 K.4 The ruling reads as follows:

"It is stated in the bill of lading dated 04.11.2017 that the freight shall be paid pursuant to the charter party dated 19.10.2017, and numbered 056. It is acknowledged by the respondent that the charter party dated 19.10.2017 is signed between the respondent and the insured. In the said charter party it states by reference that in the case of a general average, arbitration proceedings, seated in Nigde, shall be initiated and . the rules shall be applied. Pursuant to the theory of succession, an arbitration agreement agreed by the insured shall be binding upon the insurer, as well. However, both parties of the charter party are companies of Turkish origin. Pursuant to Article 1 of Law No. 805, "All types of companies and enterprises having Turkish origin, shall make all transactions, agreements, notifications, and keep records and ledgers within Turkey, in Turkish." The use of Turkish in the agreements made in Turkey by Turkish companies is mandatory pursuant to Article 1 of Law No. 805, and the agreements that are in breach of the said Article are invalid, pursuant to Article 4 of the said law. Accordingly, for the arbitration provisions of the re-referred standard charter party to be applicable, there should be a valid reference. Although, both parties of the charter party dated 19.10.2017 are of Turkish origin, the charter party was not issued in Turkish and thus, it is invalid. In this case, the decision of the court of first instance shall be reversed since the arbitration objection should have been rejected, and the proceedings should have resumed."

In this decision, a couple of important points on arbitration agreements should be highlighted. Firstly, the court accepts that an arbitration agreement should be incorporated by reference to the charter party in the bill of lading.5 Then, it is stated that the insurer is also bound by the arbitration agreement, by way of succession.6 According to the court, there is no doubt as to the mandatory nature of the use of Turkish for the arbitration agreement, pursuant to Article 1 of Law No. 805. Secondly, the court sees the sanction under Article 4 of Law No. 805 as invalidity, which reads, "Shall be disregarded to the advantage of the relying party."

The abovementioned points were already established in the previous decisions of the Turkish courts. However, a couple of points in the decision entails new discussions on this issue.

Firstly, the court states that the mandatory use of Turkish would apply to the arbitration agreements incorporated by way of reference. Accordingly, Turkish should be used in the text that contains the arbitration agreement. As seen in the decision, the focus was on the language of the charter party, not on the language of the bill of lading. When it is considered that English is generally used in standard charter parties, then the risk of invalidity for all marine transportation agreements between two Turkish parties arises.

The last point to be examined in the decision is the parties that are regarded for the application of Law No. 805. The court considered the parties of the arbitration agreement as the parties who were the initial parties to the charter party, but not the insurer who became a party by way of succession. The Court did not examine for which parties the mandatory use of Turkish will be sought. Although for the case at hand, it would not result in a material change as the insurer was also a Turkish company, but a discussion on this issue would be beneficial as the succession is only one of the situations that would result in changing the parties to an arbitration agreement. Especially, if it would not be mandatory to use Turkish when one of the parties is not of Turkish origin, as stated in the first decision, this discussion would be of utmost importance.

Conclusion

The effect of Law No. 805 as to the validity of an arbitration agreement remains a current issue although the law itself is very old. Certain discussions on arbitration agreements that were shaped apart from Law No. 805, could be re-addressed because of the cases that combine arbitration agreements and the use of Turkish. Issues, such as incorporating arbitration agreements by reference or succession, might pose additional problems in the context of the mandatory use of Turkish pursuant to Law No. 805. It seems to be a necessity for the legislator to revise Law No. 805 in order to maintain the pro-arbitration approach and to prevent the re-birth of already settled discussions.

Footnotes

1 Balikçi, Melissa: "The Effect of the Turkish Language Requirement on the Validity of Arbitration Agreements," Erdem & Erdem Newsletter, October, 2018. http://www.erdem-erdem.av.tr/publications/newsletter/the-effect-of-the-turkish-language-requirement-on-the-validity-of-arbitration-agreements/ (Access date: 06.04.2020)

2 For the text of the decision, please see. https://www.lexpera.com.tr/ictihat/bolge-adliye-mahkemesi/istanbul-bam12-hd-e-2020-19-k-2020-184-t-13-2-2020 (Access date: 06.04.2020). For the discussions on the decision, please see. Aküzüm, Dural: "Karar Incelemesi: 805 Sayili Kanun & Tahkim Dilinin Türkçe Olmasi Zorunlulugu". (Access date: 06.04.2020).

3 Aküzüm, p. 3-4.

4 For the text of the decision, please see. https://www.lexpera.com.tr/ictihat/bolge-adliye-mahkemesi/istanbul-bam12-hd-e-2019-2389-k-2020-189-t-13-2-2020 (Access Date: 06.04.2020).

5 Isik, Fatih: "Arbitration Clauses Incorporated by Reference", Erdem & Erdem Newsletter, June, 2015.

6 Öner, Duygu: "Extension of the Arbitration Agreement to the Insurer in terms of Subrogation", Erdem & Erdem Newsletter, July, 2018.

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